SPEAKERS: Gail Edwards, director, Vantage Elevator Solutions; Tom Ferree, board chair and chair of the audit and finance committee, DSG Supply Group; Paul Neustadt, third-generation owner and executive chairman, Neuco Inc.; Susan Sandland, managing director, Pearl Meyer
SANDLUND: The pace of change facing private companies is accelerating. How has the board’s role evolved over the last 10 to 15 years?
FERREE: Twenty years ago, you could build a board agenda and revisit it every year or two. Today, you need to evaluate it almost every meeting. What needs to change between this meeting and the next? How do we adjust our priorities to account for what’s happening in the business environment?
For my boards, enterprise risk management has become critical. You have to be looking ahead and understanding the risks facing the organization. At the same time, strategic planning has changed. It’s no longer an exercise where you update a financial model and put the binder on a shelf.
Boards need to be asking tougher questions: What is our strategy? Why do customers buy from us? What differentiates us? Where should we go next?
EDWARDS: I’ve seen a dramatic shift in what’s driving board discussions.
Ten years ago, boards were often reacting to what management presented. Today, directors are driving the topics they want to discuss. They’re identifying risks, asking strategic questions and prompting management to bring more information forward.
NEUSTADT: What I can say is that having an outside board has elevated our game tremendously. The professionals on our board ask questions we never would have asked ourselves.
One of the things I’ve learned is that by the time you get to the board meeting, the meeting is almost the easy part. The preparation is where the value comes from. You’re gathering information, doing research and preparing in ways you simply wouldn’t without a board pushing you. Having a board has significantly improved the way we manage the business.
SANDLUND: How do boards determine whether they have the right capabilities around the table?
EDWARDS: It all starts with strategy. Your strategy defines what you’re going to need. Once you understand where the company is headed, you can evaluate whether the board has the skills to support that direction.
That’s where the skills matrix comes in. For example, if you’re pursuing growth through acquisitions, you need directors with M&A experience. We ask directors to evaluate themselves against our skills matrix using ratings of deep expertise, working knowledge or basic familiarity.
If you identify a skill that’s important to your strategy and nobody on the board has deep expertise in that area, you’ve identified a gap. Then the chair and governance committee can focus future recruiting efforts on filling that gap.
FERREE: The skills matrix is a useful tool, but the real value comes from the discussion around it.
Some people underestimate their expertise. Others think they’re experts in everything. That’s why you need a robust conversation about how directors assess themselves and where the board’s real strengths and weaknesses are.
The goal is to make sure you’re accurately identifying gaps rather than simply checking boxes.
SANDLUND: When should a board recruit new expertise versus educating existing directors?
EDWARDS: A lot depends on timing. If the need is immediate and it’s going to affect the business right now, you may need outside advisers to bring that expertise in quickly. If it’s a capability you’ll need over time, you may be able to educate your existing directors.
AI is a good example. At one of my companies, AI is becoming increasingly important to our operations. We don’t currently have that expertise on the board, so we’re bringing in outside advisers to help us understand it. We’re not looking for a new director, but we are looking for expertise right away.
SANDLUND: What happens when directors overestimate — or underestimate — their capabilities?
FERREE: It comes down to trust. You need enough trust in the boardroom that someone can say, “I think your experience fits better in this category,” and have that discussion constructively.
If the trust isn’t there, those conversations become difficult. If it is there, the board can have honest discussions about where directors add value and where additional expertise may be needed.
NEUSTADT: Sometimes those conversations are better handled one-on-one. You can sit down with someone over coffee and ask them to explain their experience or perspective in more detail. If they can explain it, great. If they can’t, that may tell you something. The important thing is having honest conversations rather than making assumptions.
SANDLUND: How should boards think about board assessments today?
NEUSTADT: The most important thing is honesty. If people aren’t being candid, there’s no point in doing the exercise.
Sometimes you’ll hear things about yourself that aren’t comfortable. You may take offense initially, but if someone feels that way, you need to step back and ask whether there’s something you can improve. Board assessments only work if everyone is committed to getting better.
EDWARDS: We use surveys every couple of years, but the written comments are often more valuable than the ratings themselves.
The key is what happens afterward. If you conduct an assessment and then do nothing with the results, people lose faith in the process. You need an action plan that comes out of the survey results. What did we learn? What issues did we identify? What are we going to do differently? That’s where the value is created.